Empirical Performance of Commodity Pricing Models: When is it Worthwhile to Use a Stochastic Volatility Specification?Revista : Journal of Futures Markets
Volumen : 36
Número : 5
Páginas : 457-487
Tipo de publicación : ISI Ir a publicación
We compare the empirical pricing performance of three models: a constant volatility model, a two-factor stochastic volatility model, and a one-factor stochastic volatility model with a model-free implied variance speciﬁcation. Results of applying these models to oil, copper, and gold derivatives are consistent for all commodities and highlight the relative beneﬁts of the different models implying that in choosing the best model to implement in a real situation, careful consideration must be given to the tradeoffs between effort and precision. We believe our results are not only new, but also relevant for practitioners.